Financial advisors often write articles telling investors what they are doing wrong. Some print booklets with titles such as, “The ten biggest mistakes investors make,” or “The eight reasons to never own (fill in your favorite investment to hate)…”
I would like to turn the tables and discuss mistakes Financial Advisors make.
1 – Telling clients they can “beat the market.” First of all, what is the market? Is it stocks, bonds, real estate, or some imaginary index? Focusing your sales pitch on your ability to get a better return than some arbitrary “market” misses the whole point of the second mistake which is:
2 – Not understanding what clients really want. I have done this long enough to know that the vast majority of investors mainly want to retire comfortably with enough money to do the things they enjoy. They look forward to enjoying time with their family, while worrying as little as possible about their investments. Their goal is a lifestyle, not a number. Advisors often miss that. If, in an attempt to obtain some arbitrary big number they cause their client to lose sleep because of an overly volatile account, then they have misunderstood why they were hired in the first place.
3 – Not taking into account that their clients risk comfort level may be far different than their own. Many advisors are younger than their mostly retired clients and have relatively high incomes. They also may better understand investment opportunities and so are able to handle more volatility (in their personal accounts) than most of their clients. Thus, too often they put clients at a higher risk than the client is comfortable with.
4 – An advisor once told me he didn’t want to get his CFP® certification because he felt he could make just as much money without it. I explained to him that a financial advisors’ first job is to do what is best for his clients, and that included continually increasing his education and skill level. (Which is required to have and maintain a CFP® designation) Financial advisors are regularly offered educational opportunities in two main areas: Financial planning for the client and increasing profits for themselves. Far too much time is spent by advisors pursuing the latter.
5 – Not communicating with their clients. In a prospective client questionnaire I ask “Is there anything you would change about your prior advisor relationship?” The number one answer to that question is some form of, “He never called me.” It would be irresponsible to manage someone’s life savings without regular contact with them. Yet it happens.
6 – Selling investments without proper due diligence. Clients often do not understand their investments, but they trust that their advisors do. Since investment firms regularly pitch their products to advisors, this can sometimes lead to an investment recommendation to a client that the advisor really does not adequately understand.
Financial advisors play a valuable role in their clients’ lives. It is important they take that fiduciary responsibility very seriously.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
This communication is strictly intended for individuals residing in the states of AZ,CA,CO,DC,FL,ID,IL,KS,KY,MA,MI,MN,MO,MT,NE,NM,NV,OH,OR,PA,SD,TN,TX,UT,VA,WA,WY. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.